Some business owners compare cash flow to oceans; the ebbs and flows of the water as it encounters land represent the amount of cash generated (flow) and used (ebb) by a business over specific periods of time. Without proper maintenance, cash flow can become a constant low tide, exposing businesses to problems that can affect their bottom lines. To avoid wading in a pool of financial losses, implement a plan for cash flow success.
Perform a cash flow analysis
If you don’t know where your business is, how can you know where it’s going? Through a cash flow analysis, you can determine how much money is flowing into your business each month, as well as your outflow, or expenses. During the months that your business has a positive cash flow – more inflow than outflow – determine what factors led to those positive gains. Did you have an increase in sales? Did you introduce a new product? Did more customers pay on their accounts? Also examine factors leading to months of negative cash flow. Look at one-time payments and recurring expenditures such as salaries, insurance, and payments for loans and leases. A thorough analysis will provide much needed information so you can begin gaining control over your cash flow.
Revamp your accounts receivable
How long is your billing period for products sold or services rendered? Although accounts receivables are assets, their true value comes into fruition when they become paid invoices. Most clients and customers will wait until the due date to remit payment, meaning your business may have to wait 60 or more days. How can you receive payments faster? Some businesses offer discounts to customers who pay their invoices before the due date; others require a partial payment or deposit before delivering goods or services. Employing methods to receive payments earlier will help you increase your cash flow. If any changes require contract modifications, consult with an attorney specializing in business transactions.
Manage your accounts payable
One of the most important things you can do for your business is pay bills on time. Late payments usually incur additional charges that will negatively impact your cash flow. Take advantage of incentives for early payments, which can result in beneficial savings over the long term of your accounts. Some businesses make charts of their expenses and due dates so they can stagger payments and keep cash on hand as long as possible. Remember, expenditures are necessary for businesses, so seek out the best deals to save on costs.
Controlling the cash flow tide of your business is essential for its success. Becoming knowledgeable about the money ebbing and flowing of your business on a daily basis, as well as how that money is earned and spent, is the starting point for managing cash flow. Without that knowledge, you risk only going with the flow, not controlling it.
The Law Offices of Terry L. Gilbeau provides personalized counsel to clients in a variety of business and personal matters, including creditors’ rights, debt collection, products liability and international transaction issues. His office is located in Rocklin, CA, just outside of Sacramento, CA, near Roseville, Lincoln, Auburn, in Placer County and can be reached at (916-626-5539) or email Terry at firstname.lastname@example.org. Click here for the firm website http://www.gilbeaulaw.com/